Tag: Financial planning

It was almost a decade from now when the HDFC small-cap fund was introduced on 10th April 2008. Well, at that time it was named as Morgan Stanley ACE fund and a multi-cap scheme was followed. But in mid-2014, Morgan Stanley MF was procured by HDFC Mutual Fund, that time the investments scheme were changed and the scheme was renamed as HDFC small and mid-cap fund. Again in November 2016, it was rechristened as HDFC small-cap fund.

The fund invests primarily in small-cap corporations and pursues to deliver long-term capital income. CMFR (Crisil Mutual Fund Ranking) rated it as the number one in the small-cap funds’ list for the first quarter of 2018. The manager of the fund since June 2014 is Mr. Chirag Setalvad who has more than 20 years of experience.

The fund’s AUM (Assets under Management) of the month-end arose more than 4 times which is ₹4578 Crores in May’18 from ₹909 Crores in June’15.Also, the fund has provided much higher average daily returns in more than last three years in comparison to the standard and rivals and with lesser volatility.

The fund has constantly surpassed the standard (BSE 200 TRI) and the listing (illustrated by funds placed in the small-cap funds listing in Crisil MF rank) overall dragging phase under analysis.

Risk analysis

Alpha

7.69

Beta

0.95

Downside Risk

18.91

Info Ratio Rel.

1.99

Jensens Alpha

7.34

Max. Drawdown

-18.11

Max Gain

36.70

Max Loss

-18.11

Negative Periods

11

Positive Periods

25

r2

0.96

Relative Return

7.17

Return

18.24

Sharp

0.62

Sortino

0.59

Tracking Error

3.60

Trenyor

11.25

Volatility

17.43

Portfolio analysis

Since last 3 years, the fund’s small-cap provided an average of 61.04%. The small-cap allocation has made a hike since November’16 after the fund was rechristened as a small-cap fund. Talking about sectoral level, in the last three years there were 5 primary sectors which contributed approx. 47% of the fund’s equity portfolio. During that phase, the main sector allocations involve construction projects, pharma companies, banks, industrial products and auto auxiliaries.

One of the major contributors during that phase was VIP industries, Balkrishna industries, Aarti industries and KEC international.

In this listing, Dilip Buildcon has been the biggest contributor to the fund’s achievement.Up to May’18 Industrial products has been the highest component of the fund’s equity portfolio which was 16.2% then software-13.12%, banks-8.3%, auto auxiliaries-6.75% and pharma industries-5.3% respectively.

The fund has invested in 124 stocks in the last 3 years, of which 22 were constantly clutched. The biggest contributors to the fund’s achievement between the constantly held stocks were Banco products, Swaraj Engines, NIIT technologies, Kalpataru power transmission and Carborundum Universal.

Note : Past performance of fund does not guarantee the future returns.

Disclaimer:No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here.

“Active fund managers in India have convincingly outperformed benchmarks over 5, 10 and 20-year time frame.” The industry of mutual fund was open to private sector encounter for the first time in 1993.

The former Kothari Pioneer Mutual Fund which is named as Franklin Templeton MF introduced Prima & Blue chip fund on 1st Dec.’93. Initiating from these two funds, there were 9 equity fund schemes obtainable in India. A total of six schemes were introduced in 1993 and two were introduced before ’93. to develop the assets under their enclosure to nearly ₹7 lakh crores from ₹48,000 crores, it takes almost 20 years of efficiently period.

Indian MFs have multiplied their assets to more the ₹23 lakh crores in the past 5 years without any exertion. Almost ₹70,000 crores of the yearly MF Flows now floats in through the SIP (Systematic Investment Plan). These days the SIPs capture prime recall for the new and upcoming investors but competing with the old preferences like insurance plans and bank deposits have never been such easy-going.

For the current position of the industry, the excellent ones are the asset managers, advisors, and the regulators. The credit must go to these three positives of the MF industry. There was a time when the fund managers have struggled in the developed markets to keep it and match up with the markets, active fund managers in India have definitely outperformed benchmarks over 5, 10 and 20-year time frames. The 10-year category returns on sincerely organized small-cap, mid and large-cap funds are ahead on the Nifty50, Nifty Midcap100 and Nifty Small cap 100 by compelling margins of 100, 300 and 700 basis points even in spite of recent fluctuations. The supremacy of the open-end funds has also made it clear that the worst performing ones lose assets to the good performing ones.

By continuously prioritizing investor’s concerns, SEBI has shown that it’s a strong regulator. SEBI has played a crucial role in establishing MFs by the’ advanced tightening of its rules on revelation, efficient exposures, and governance.

Despite the outstanding performance of the MF industry, there are some misses that should be developed. Indian MF industry is mainly marketed on their current 1-year, 3-year, and 5-year records. According to the sources, approx. 55% of retail investors had only 2-year holding period on equity funds and that time is too less and barely provide the benefits of investing in equity. A large number of domestic equity funds exhibit portfolio turnover ratios of more than 50% that means minimum half stocks are replaced within a year. The industry must shift the goal-line to more long-term performance course to entice better fund managers and more stable assets. The salary of fund managers must benefit into constancy and tenure, and not just to master the 1 to 3-year rankings.

In India, Equity MFs are still categorized on the basis of a sole-dimensional market-cap viewpoint which is an idea introduced in 1993 by the Kothari Pioneer MF. Debt funds are even adapted more to corporate treasuries than the new and retail investors. Also, ETFs and good passive funds are lost in action while there is a group of many active funds. In the past years, new launches have focused around common closed-end funds, thematic funds or equity saving funds, intended to utilize tiny loopholes in constantly changing tax laws. Rather than, investors will like to invest in 10 to 15-year debt funds and pension funds that provide tax-efficient income or ETFs with micro-cap or wide-market portfolios.

After putting barriers on liquidity and declaration with their open-end funds MFs have been reverting recently, by turning out series after series of closed-end funds with indefinite instruction. Close-end schemes at 1002 are numerous than open-end schemes i.e. 811.

It can be strange to worry about diminishing competition in an industry with about 2000 schemes and 40-odd players. But the reality is that the industry is rapidly becoming a horse race. Talking about today, the topmost 5 AMC in the industry manage almost 57% of the assets. Moreover, this listing has rarely any changes in the past 10 years with large AMCs easily growing larger.

In addition, it seems to be a far better option that MF industry self-regulates itself on these particular outlooks. Without remaining awaited for the SEBI to add some more pages to its already long rule-book.

Note : Past performance of fund does not guarantee the future returns.

DISCLAIMER

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here.

CreditAccess Grameen is a Bengaluru-based leading micro-finance institution, focused on providing micro-loans to women customers predominantly in rural areas in India. It is the third largest NBFC-MFI in India by gross loan portfolio end March 2017. The wide range of lending products addresses the critical needs of customers throughout their life cycle and includes income generation, family welfare, home improvement and emergency loans. The customer-centric business model, wide range of product offerings, as well as well designed product delivery and collection systems, has enabled the company to achieve high customer retention rates and low credit costs.

The company focuses on customers in rural areas in India, who largely lack access to the formal banking sector and present a latent opportunity for offering micro-loans. The products are built on a deep understanding of the requirements of customers. The flexibility of products in terms of ticket sizes, end-uses and repayment options etc. and the manner of their delivery differentiates it from competitors and generates customer loyalty.

CreditAccess Grameen raises Rs 339 cr from anchor investors.

The company has allotted 80,41,617 equity shares to 21 anchor investors

The Promoter is CreditAccess Asia N.V., a multinational company specializing in MSE financing (micro and small enterprise financing), which is backed by institutional investors and has micro-lending experience through its subsidiaries in four countries in Asia. The Promoter has provided capital funding to the company, from time to time and provides with access to potential fundraising opportunities in the debt capital markets.

Objects of the Issue:

The Offer comprises of the Fresh Issue and the Offer for Sale.
The Company will not receive any proceeds from the Offer for Sale.
The net Proceeds from the Fresh Issue will be utilized towards augmenting the capital base to meet future capital requirements of the company which are expected to arise out of growth in the Company’s assets, primarily the Company’s loans and advances and other investments.

Operations of the company are concentrated in Karnataka and Maharashtra, with 191 of 516 branches located in Karnataka and 144 branches located in Maharashtra. About 58.1% of gross AUM is originated in Karnataka and 26.7% in Maharashtra. In the event of a regional slowdown in the economic activity in these states, or any other developments including political unrest, drought/floods and other natural calamities, or social upheaval in these states can affect its financials and prospects adversely.

Microfinance loans are unsecured and are susceptible to various operational and credit risks which may result in increased levels of NPAs, thereby adversely affecting business. Furthermore, as there is typically limited financial information available about focus customer segment and many of customers do not have any credit history supported by tax returns, bank or credit card statements, statements of previous loan exposures, or other related documents, it is difficult to consistently carry out credit risk analyses on customers.

An increase in its portfolio of non-performing assets and its provisions may materially and adversely affect its business and results of operations.

The past performance and growth of its business are not indicative of its future performance and growth.

Creditaccess’s business is particularly vulnerable to interest rate risk, and volatility in interest rates could have a material adverse effect on its net interest income, net interest margin and its financial performance.

Any downgrade of its credit ratings may increase its borrowing costs and constrain its access to capital and debt markets and, as a result, may adversely affect its net interest margin and its results of operations.

Creditaccess’s Promoter has invested in Sahayata Microfinance Private Limited, which has been involved in various financial irregularities and discrepancies in the past.

Competition from banks and financial institutions, as well as state-sponsored social programs, may adversely affect its profitability and position in the Indian microcredit lending industry.

There are outstanding legal proceedings involving its Company and some of its Directors, and adverse outcomes in such proceedings may negatively affect its business and results of operations.

There is significant competition from other MFIs and banks in India (including SFBs). Some commercial banks are also beginning to directly compete with for-profit MFIs for lower income segment customers in certain geographies.

The rise of digital platforms and payment solutions may adversely impact the business model and there may be disintermediation in the loan market by fintech companies.

The annualized EPS on post-issue equity works out to Rs 8.69 for FY2018. At the price band of Rs 418 to Rs 422, P/E works out 48.1 to 48.5 times.

Post-issue, the book value (BV) is Rs 143.41 at the issue price of 418 and Rs 143.55 at the issue price of Rs 422. P/BV works out to 2.91 times at lower price band and 2.94 times at the upper price band.

Among peers, Bharat Financial Inclusion is trading at P/BV of 5.69 times, Satin Creditcare at P/BV of 1.55 times and Equitas Holdings at P/BV of 2.19 times.

The following table sets forth our key financial and operational metrics as of or for the periods indicated

Comparison with Listed Industry Peers

Grey market premium:

GMP as on 8th Aug 2018 @ 16.00 is Rs. 10 /- , Kostak is Nil /-

DISCLAIMER:

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here

Axis Long Term Equity Fund is an ELSS (equity-linked savings scheme) fund managed by the AMC Axis Mutual Funds. It is designed to provide subscribers with tax savings benefits under section 80C of the IT Act 1961. This fund invests exclusively in equity and equity-linked instruments such that it features a high degree of growth with the potential of providing high returns to those investing the Axis Long-Term Equity Fund scheme. Like any other equity mutual fund, the Axis Long-Term ELSS is traded in stock markets, and its unit price is subject to daily change.

Fund features:

This ELSS mutual fund is an open-end scheme, i.e. investors are free to invest in it or liquidate it as per their investment requirements. Additionally, it is an equity-linked savings scheme (ELSS) hence it provides tax deduction benefits under section 80C with the mandatory 3-year lock-in requirement. It is, however, important to note that investors can choose to remain invested in the scheme beyond the mandatory 3 year lock-in period to make his/her wealth grow even further.

Risk Level:

The expected level of risk undertaken by an investor of this key mutual fund is classified as moderately high due to its high equity exposure. However, this does increase the chances of potentially high returns for those remaining invested in the scheme for a longer tenure.

As mentioned earlier, this scheme is designed to provide income and long-term capital appreciation to investors by investing in a wide range of equity and equity-linked investments. As a rule, this ELSS mutual fund from Axis has focused on organizations that have robust growth prospects or have proven performance track record in their area of expertise. The fund invests in company equities across key segments such as large cap, mid cap and small cap irrespective of the sector the companies belong to.

Performance of the fund so far:

The fund has surpassed the benchmark index (12.07%) and the bracket average i.e., 13.66% providing a return of 19.22% within 7 years. The fund has made an outstanding track record of outshining since the initiation.

Annual performance (in percentage):

The fund has provided exceptionally good performance beyond time periods.

The fund has appeared to be more vigorous in this year, overcoming all its peers easily after a small drop in the return profile in past two years. The fund manager’s uncompromising attention on the standard of underlying portfolio and leaning towards large caps has improved it to deliver outperformance between the deficiencies in the broader market. The fund takes a top-heavy approach with a huge position in its uppermost picks even it constantly runs a compact portfolio with a gush in its asset base. It also acquires a high benchmark skeptic perspective, comfortable in taking remarkably higher exposure about an index. With its big skew to towards financials, this adds a portion of aggression to the fund even its firm stance on retaining the quality. A supportable pick-up in return profile will show its long-term achievements.

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here.

A rapidly increasing trade war and an escalation-focusing RBI (Reserve Bank of India) is thrusting the local fund and money managers into low-risk and shorter debt securities. Take a look at their plans and what they said about it –

Choose the 3-year segment

Mahendra Jajoo, Head of India Fixed-Income (Mirae Asset Management)

“The most appealing segment is the three-year segment because after that there are a lot of riskiness and challenges to face.”

The most beneficial thing about the three-year segment is that if you are to manage in a situation where you predict that the macros are somewhat risky and uncertain, but probably have ended being worse, what you think you do in that situation? I things started being worse from here, then you are not freaking out much because, at the very end of 3 years, you will get the capital back.

“As there are a plenty of riskiness and uncertainties regarding policy decisions and macros, make your portfolio defensive. By being defensive, I mean purchasing two or three-year sovereign bond i.e. short-duration.”

“Short-end of curve provides the most comfort at this point. The delta risk to take for maturities which are long-term is not equivalent to the available return.”

She said that she suggests state bonds of the same duration rather than AAA and sovereign bonds.

Probably there will be two or three more rate hikes as per recent pricing followed by relatively long pause after that. Additional policy action is on the cards with clarity.

DISCLAIMER

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here.

Rebalancing portfolio has its own compulsion as rebalancing can help you to return on the route if you have deviated away from your primary asset allocation. Also, rebalancing can secure your portfolio from the volatility of the market in the case you want to minimize your investment risk. There can be several reasons that may lead you to rebalance your portfolio like a change in your financial situation or in the case if you have acquired your goals, rebalancing the portfolio is a must.

But there is a set of rules while rebalancing the portfolio otherwise you will end up going beyond the defined level for your debt as well as an equity component. There are a lot of consequences and implications in terms of taxes, the effect on goals etc. while rebalancing the portfolio.

There are some common and avoidable mistakes that one must not do while rebalancing.

Focusing on the losers only rather than current winners

While rebalancing, it is a most important thing to keep in mind that it is necessary to take a look at the investments that are performing well while it’s alright to replace the investments that are leading you to lose your money otherwise you will end up exposing yourself to a big risk. It’s always a better plan to take a step back if you are willing to reorganize things throughout your portfolio.

Rebalancing is too important to be done only by one’s presumptions as you may assume that rates are going to get down in upcoming months and you move your debt portfolio in favor of funds that are long-dated. Reversely, you may have a feeling that the equities are going to get overpriced and a result of that you may want to shift more into low beta equities. Both views are based on just presumptions and may vary in reality. So, it is good to do rebalancing according to the rules.

Disregarding the tax factors

It’s very important to rebalance carefully when it comes to the tax bill. One must be attentive to how it might affect. You need to know while rebalancing that even the equity funds have to pay the LTCG tax on profits more than ₹1 lakh per year which is 10%. When you are exiting out of debt funds, tax bills can be higher. The taxes can be at the highest rate that is 20% after evaluating the benefit of indexation if you are selling out in less than 3 years. The tax costs can change the economics of rebalancing the portfolio.

Rebalancing without any supervision

It’s always a great decision to be on yourself and to do things on your own but sometimes a little guidance can take you out of the future risks. Like in rebalancing, it is always a better decision to take an advice of any expert while rebalancing your portfolio. An expert can help you in making quick and fruitful decisions and may tell you the do’s and dont’s of rebalancing. Those will make more comfortable for you to make further decisions about your long-term goals.

Rebalancing without any particular investment goal

One of the most common mistakes is rebalancing without any particular investment goal. Also, It is always a better decision to stay in liquid funds and not to rebalance it when you are close to your goals. Rebalancing is an important decision concerning the portfolio, the only thing is it must always be linked with your long-term goals and the costs do not exceed your benefits of rebalancing.

Conclusion –

Rebalancing portfolio is not as hard as it seems but if one is willing to take proper gains from the benefits it gives, then there is a necessity to follow some rules and take some guidance in order to maximize the returns of your investments and minimize the risk factor.

HDFC Asset Management Corporation (HDFC AMC) coming up with an IPO. The company got SEBI’s nod for the initial public offer. The company incorporated in 1999 based in Mumbai. HDFC Mutual Fund is asset management company which provides services in savings and investments.The company is JV between Housing Development Finance Corporation Limited (“HDFC”) and Standard Life Investments Limited (“SLI”). HDFC is a bigger name in finance and housing market. The company is doing well in India and the coming years will be good for the company as per the financial results. It caters various products portfolio covering five principal segments across the individual and group categories, namely participating, non-participating protection term, non-participating protection health, other nonparticipating and unit-linked insurance products. HDFC Standard life has 66,372 individual agents along with 414 branches across India.

HDFC AMC offers a wide range of savings and investment products across asset classes. As of December 31, 2017, it offered 127 schemes categorized into-

The company also provides portfolio management and segregated account services to HNIs, family offices, trusts, domestic corporates and provident funds etc. As of December 31, 2017, it managed a total AUM of ₹75.78 billion as part of its portfolio management and segregated account services’ business.

India has historically been and is expected to remain a savings economy. The gross domestic savings rate (as a percentage of GDP) is higher than those of major economies such as the US, the UK, France, Japan and Germany.

As of 2016, India’s gross domestic savings rate stood at 29%, compared with the global average of 25%. Household savings in India has witnessed growth from ₹20.7 trillion in Fiscal 2012 to ₹24.8 trillion in Fiscal 2017, although its share as a percentage of GDP remained subdued during the period. The past two years have seen a quantum spurt in investments into capital markets, with the household allocation to shares and debentures increasing from 2% in Fiscal 2015 to 10% in Fiscal 2017 as well as a sharp increase in the mutual fund assets under management (“AUM”).

For the period April 2015 to December 2017, the individual investors’ AUM grew at a CAGR of 33% to ₹11.4 trillion. In Fiscal 2018, CRISIL Research expects CPI inflation to fall further and average 4%. Over the long term, too, the RBI is committed to keeping inflation low and range-bound. Lower inflation gives an impetus to overall savings, as people can save more. CRISIL Research expects financial savings to increase withthe government’s strong stance against black money and diminishing attractiveness of real estate and gold, along with improvement in financial education among households and measures taken towards financial inclusion.

Growing awareness can boost acceptability of mutual funds as an investment vehicle.

Spending on investor awareness rising.

Regulations to incentivise investments in smaller cities

Retirement money can be a big impetus

Tax benefits on equity-linked savings scheme (“ELSS”) a huge draw

Guidelines on a categorisation of schemes to make investing easier

Technology to be a key enabler for growth

Instant access facility a viable alternative to a savings account

Key Challenges

Low level of financial awareness

Competition from other financial instruments

Retail expansion at a reasonable cost

Negative

There are outstanding proceedings against us, Promoters, Directors and Group Companies and any adverse outcome in any of these proceedings may adversely affect its profitability and reputation and may have an adverse effect on its business, results of operations and financial condition.

Adverse market fluctuations and/or adverse economic conditions could affect its business in many ways, including by reducing the value of our AUM, causing a decline in its investment management fees, portfolio management fees or fees from advisory services, reducing its systematic transactions, and causing its customers to withdraw their investments, each of which could materially reduce and adversely affect its revenue, business prospects, financial condition and results of operations.

If its investment products underperform, its AUM could decline and adversely affect its revenues, reputation and brand.

HDFC AMC AUM may be constrained by the unavailability of appropriate investment opportunities or if we close or discontinue some of its schemes, products and services.

HDFC AMC’s historical growth rates may not be indicative of its future growth and if we do not manage its growth effectively, its financial performance could be adversely affected.

Failure to continue with its existing distribution relationships or to secure new distribution relationships may have a material adverse effect on its competitiveness, financial condition and results of operations.

HDFC AMC rely on third-party service providers in several areas of its operations and may not have full control over the services provided by them to us or to its customers.

If its techniques for managing risk are ineffective, HDFC AMC may be exposed to material unanticipated losses.

HDFC AMC may not be able to implement its growth strategies.

Any concentration in its investment portfolio could have a material adverse effect on its business, financial condition and results of operations.

HDFC AMC is dependent on the strength of its brand and reputation, as well as the brand and reputation of other HDFC group entities and Standard Life Investments group companies.

HDFC AMC face competition from other asset management companies, alternative investment funds and other companies providing portfolio management and segregated accounts services and from alternate investments products available in the market.

HDFC AMC’s business would suffer if we lose the services of its key management and other personnel and we are unable to adequately replace them.

HDFC AMC may have negative cash flows.

Valuation

Revenues of the company have increased at CAGR of 20% from Rs 858.55 crore in FY2014 to Rs 1759.75 crore in FY2018. The company has posted healthy 19% CAGR growth in net profit to Rs 721.62 crore in from FY2018 from Rs 357.77 crore in FY2014.

The company has consistently delivered RoE of above 40% for last five years to FY2018.

Post-issue valuation is Rs 23319 crore at the upper price band of Rs 1100 per share and Rs 23213 crore at the lower price band of Rs 1095 per share.

EPS for FY2018 works out to Rs 34.04 on post-IPO equity basis. The scrip is offered at P/E multiple of 32.3 times FY2018 EPS at the upper price band.

The post-issue book value (BV) is Rs 101.9. The scrip is offered at a P/BV multiple of 10.8 times at the upper price band of Rs 1100 per share.

The recently listed peer company, Reliance Nippon Life Asset Management Company is trading at P/E multiple of 25.4 times FY2018 EPS and a P/BV multiple of 5.8 times. Reliance Nippon Life AMC is the fourth largest mutual fund in India with average AUM of Rs 244903.56 crore end March 2018, which has recorded RoE of above 24% for last three years to FY2018.

Conclusion:

The company posted revenue of 19% CAGR in the last 5 years. It earns decent profits. However, its issue price is highly priced. I would have been excited if the issue price was on the lower side. Considering its brand in the mutual fund business and positive factors, investors can invest in this IPO for 4-5 year tenure.

Grey market premium:

GMP as on 25 July 2018 @ 18.00 is Rs.460 /- to 465/- , Kostak Rs.1650/- GMP has remained steady for whole day.

DISCLAIMER:

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here

Mutual funds are now 21% of the bank deposits. On the other hand, the Indian mutual fund’s industry still has much to gain on with its worldwide squint regarding of the brisk and massive growth in the recent times.

In spite of a massive rise in the equity market and a stable inflow through the SIPs (Systematic Investment Plans), mutual funds had become successful in enticing the trade investors as their equity AUM (Assets under Management) rated for 8% of the bank deposits in the previous fiscal year. According to the data obtained by the RBI, the equity assets of the mutual funds were ₹9.3 lakh crores in averse to ₹115 lakh crores in bank deposits by March end.

Progressively, the latest data reveals that the mutual funds are getting well-liked among the investors. The AUM of the mutual funds was counted at 10.44% of the total bank deposits by March 2013. This percentage has increased to 17.44% in March 2017 and then gains a hike to 21% in December 2017. In past 4 and half years, the mutual fund industry has added an amount of ₹ 14.25 lakh crores meanwhile ₹33.79 lakh crores increased the bank deposits.

Also, mutual funds AUM stances at 18% in March 2017, on the other side this ratio was 100% in the US. A huge growth possibility can be seen in India in terms of population dispersion and increasing per capita income from ₹75,000 to ₹2.5 lakhs. The mutual fund industry has attempted several campaigns like ‘Jan Nivesh’ and ‘Mutual Fund Sahi Hai’ to attract the investors towards MF. Also, in the past six years, the mutual fund industry has acquired the growth of 20%. Mutual fund AUM will touch ₹95 lakh crores by 2025 if the industry gets to attain this rate.

Source– RBI, IRDAI (Insurance Regulatory and Development Authority of India)

One of the biggest macroeconomic improvements in MFs is AUM to GDP ratio. Vast change can be seen between the percentage of GDP in FY 2000 and the GDP of FY 2018. Where the GDP was 5.6% in FY 2000, now it has risen to 12.8% and this growth indicates the huge growth potential of the MF industry.

The chart shows that developed countries like the US (101%), France (76%), Canada (65%) and the UK (57%) have listed high-level mutual fund penetration. Similarly, the emerging countries like South Africa (49%) and Brazil (59%) have an outrageous allocation in mutual funds in comparison to India. The distribution of India indicates a significant scope for growth as the average of the mutual fund penetration of the world stances at 62%.

This chart shows that the highest allocation percentage of equity mutual fund AUM to market cap ratio is of Germany that is 51%, the US stands second with 41%. While India has only 4% allocation and such low penetration suggests that there is a steady growth prospect for the MF industry, especially in equity mutual funds.

With the stock market going through volatile times, many fund managers seem to be moving to cash. According to data from Ace Mutual Fund database, more than 20 diversified equity funds currently have a cash allocation of above 10 percent in their portfolios. While it may seem like a safe call, Many fund manager say that it should depend on the fund’s mandate. Many fund houses have in-house rules that forbid their fund managers from going into cash above five-six percent.

To reduce the mid-cap pain

The ongoing correction in mid- and small-cap stockshas forced many fund managers to seek refuge in cash. “Many funds with a mid- and small-cap mandate and even others that had taken large exposure to these stocks during the rally have been hit in a big way. These funds have moved into cash to reduce the pain from the correction.” Funds that have booked timely profits in mid- and small-cap stocks too have been left holding high levels of cash.

Many funds are still adjusting their portfolios to comply with Sebi’s new categorisation norms. If, for instance, large-cap funds had taken high exposure to mid-caps to boost their returns, they are now selling those stocks to turn compliant with the new norms.

Another reason is that political uncertainty is affecting sentiment. “Several state elections are due this year, and then we have the general elections next year. Many fund managers are sitting on cash because of the current volatility in the markets, and to see how things shape up politically. Some funds, such as value funds and dynamic asset allocation funds, allocate to equities based on market valuations. When valuations move high, they move into cash.

Many fund managers are also facing the problem of plenty. While the industry is receiving monthly inflows of Rs 75 billion through systematic investment plans, there aren’t many opportunities due to the high valuations in the midcap and smallcap segments. Even many large-cap stocks seem overvalued.

There are risks too

During the financial crisis of 2008, many fund managers had gone heavily into cash to prevent their funds from correcting deeply. However, when the markets rebounded in 2009, these funds were left on the sidelines. Their performance took a knock, and it took them several quarters to catch up with peers who were fully invested. After this, many fund houses introduced internal rules stipulating that fund managers should not gain more than five percent exposure to cash. When fund managers take high cash allocation calls, it implies that they are trying to time the market, a tricky thing for any fund manager to pull off consistently.”

When funds take large cash calls, it also skews the investor’s asset allocation. A simple example will help illustrate this point. Suppose that an investor wants 50 percent equity and 50 percent fixed income exposure in his portfolio. He invests the 50 percent in an equity fund. But the fund manager invests only 70 percent of his fund portfolio in equities. As a result, the investor’s equity allocation falls to 35 percent. This is a more conservative allocation than he desires and could affect his long-term returns. Asset allocation is best left to investors themselves.

Exceptions to this rule

While most equity funds should stay almost fully invested, dynamic asset allocation funds and value funds are exceptions. Dynamic asset allocation funds, as their name implies, take asset allocation calls, often based on a formula. When markets become expensive, as indicated by price to earnings (P/E) or price to book value (P/BV) ratio, they reduce allocation to equities, and vice-versa.

Value-oriented funds are the other exception. Quantum Long Term Equity Value Fund, for instance, doesn’t shy of parking a considerable portion of its portfolio in cash if the situation warrants. Says Atul Kumar, head-equity funds, Quantum Asset Management: “If we find value in stocks, we stay invested. But many of the stocks that we held reached the sell limit we had set for them, so we were forced to sell them. We are also finding fewer new opportunities. That is why our cash level has gone up. It is not a tactical call. It comes out of our bottom-up, process-driven approach.”

PPFAS Long Term Equity Fund currently has a cash allocation of 23.28 percent. Explaining the fund’s approach, Rajeev Thakkar, chief investment officer and director, PPFAS Mutual Fund says: “We don’t start off with any target cash position. Our objective is to deploy everything in equities. But if we find stocks worth investing in only up to 77 percent of our corpus, then 23 percent will be the residual cash that will lie around till we find suitable opportunities.”

Going into cash can prove advantageous in certain situations. Says Thakkar: “If there is a significant correction, the cash position could become a significant factor responsible for outperformance.” He adds that being in cash also gives the fund manager opportunities to buy stocks at attractive valuations when the markets or select stocks correct.

According to Radhika Gupta, CEO edelweissamc taking large cash calls in long only funds … something to avoid because it distorts the asset allocation of an investor, given they are investing in a relative return fund.

In a significant decision, the retirement fund body Employees Provident Fund Organization (EPFO) on Tuesday gave more flexibility to subscribers for withdrawing their employee provident fund (EPF) kitty. EPFO subscribers will now be given the option to partially withdraw from EPF kitty after one month of unemployment or leaving the job. The EPF account holder can also keep its account active with the EPFO. The latest move will benefit about 5.5 crore subscribers. EPFO manages a corpus of over Rs 10.5 trillion.

Here are five things to know about the new provident fund (PF) withdrawal rules:

1) Currently, an EPFO subscriber can withdraw the accumulated funds in EPF kitty after two months of unemployment and settle the account in one go.

2) Under the new EPF withdrawal rules, EPFO subscribers will an the option to withdraw 75% of accumulated corpus after one month of unemployment and at the same time keep the account active.

3) Also under the new rules, EPFO subscribers will have the option to withdraw the remaining 25% of their funds and go for final settlement of account after completion of two months of unemployment.

4) “EPFO has decided to amend the scheme to allow members to take advance from its account on one month of unemployment. He can withdraw 75 percent of its funds as advance from its account after one month of unemployment and keep its account with the EPFO,”

5) The new rules would give an option to subscribers to keep their account with the EPFO, which they can use after regaining employment again. “EPFO are trying to give subscribers a window to take out a sizable portion of the corpus, yet not close the account. When he gets a new job, he can transfer the old account money to the new account with the new employer,”

Currently, an EPFO subscriber needs to contribute to his EPF account consecutively for at least 10 years to become eligible for a pension. However, if a person closes his or her EPF account two months after losing a job, it may affect the person’s pension eligibility.

In another development, the central board of EPFO has also sought the approval of the finance ministry before deciding on diversifying its equity portfolio beyond the Nifty 50 and Sensex 30 stocks. The EPFO had started investing in ETFs in 2015 with a mandate of investing 5% of its investible deposits in the equity-linked schemes. The proportion was increased to 10% in 2016-17 and 15% subsequently in 2017-18.